By Pankaj Kumar, Managing Director & CEO, GOCL Corp Ltd
The semiconductor industry was thrust into the limelight in 2021 when chip shortages initially forced the shutdown of vehicle production lines. All of a sudden, everyone was discussing the tiny chips that power numerous electronic gadgets and devices. The focus grew when certain high-tech and consumer electronics companies started to report chip shortages or expressed worries about supply chains. It was visible that we live in a world dominated by semiconductors.
The scarcity of EMS and semiconductors was caused by several issues coming together. Along with long-standing problems in the sector, like inadequate capacity at EMS and semiconductor fads, the COVID-19 pandemic brought forth brand-new difficulties due to disrupted supply chains. For instance, as vehicle sales plunged in early 2020, automakers didn’t realize the shortages as they had reduced their chip orders. But, in the second half of 2020, when demand increased more quickly than expected, the semiconductor sector had already changed manufacturing lines to accommodate the demand for other uses.
Adding to this crisis, due to the high demand for electronics like laptops, and other linked gadgets, the semiconductor business has been doing well lately. The COVID-19 epidemic has also helped the sector expand because of the rise of online shopping and remote work, which has increased demand for electronics and associated parts. Many EMS and semiconductor firms have consequently achieved impressive financial performances and high levels of profitability. It’s important to remember that the industry is vulnerable to demand swings and may be impacted by variables including advancements in technology, trade policy, and generalised economic conditions.
However, due to the complexities of the manufacturing process, the current chip shortage is unlikely to be easy for the industry, and for the products that are already well established in a manufacturing line, typical lead times can exceed four months. Switching to a different manufacturer typically adds another year or more because the chip’s design must be altered to match the new partner’s specific manufacturing processes. Furthermore, some chips may contain manufacturer-specific intellectual property that may necessitate changes or licenses.
To decrease the effects of disruptions to the global supply chain, the government of India is increasing their investments in technology, and never before have the stakes been higher. At technology companies in the early 2000s, profit margins were poor, and the majority of them produced returns that were less than their cost of capital. However, profitability expanded over the past ten years as a result of rising digitisation usage, skyrocketing demand for microchips across most industries, and ongoing consolidation in many sub-segments. The profitability of the sector has increased dramatically in comparison to other industries, and this trend is expected to continue.
The current trends influencing the sector:
1. In order to streamline their operations and focus on their core competencies, businesses are increasingly outsourcing their electronics manufacturing to EMS and semiconductor providers. This trend is expected to continue as businesses strive to cut costs and increase efficiency.
2. Customers want more customised products, and providers are responding by providing more flexible manufacturing services that can quickly adapt to changing customer needs.
3. Adoption of Industry 4.0 to boost production efficiency, save costs, and raise quality, EMS and semiconductor providers are progressively implementing Industry 4.0 technologies including IoT, automation, and AI.
4. Sustainability, as a result of growing environmental concerns, manufacturers are turning more and more towards sustainable manufacturing methods. To address these needs, company providers are implementing more ecologically friendly procedures and materials.
5. Globalisation as a result of cost and expertise advantages, the EMS industry is becoming increasingly global, with companies outsourcing manufacturing to providers in various regions around the world.
These are only a handful of the developments that are influencing the EMS and semiconductor sector. In order to stay competitive and satisfy their customers’ changing expectations, the providers will need to stay on top of these trends as well as adopt new technologies and techniques. In addition to this, the Indian government is promoting make in India and turning the country into a powerhouse for manufacturing.
With this geographic spread, value creation in the semiconductor industry can have an impact on economies all over the world. The current international situation in the semiconductor industry, particularly the ongoing global chip shortage, has created several opportunities for India to seize and establish itself as a key player. GOCL, realised this and began developing new strategies to prevent such chips.
Some of the key factors that we can focus on to further achieve more market share:
Increasing domestic manufacturing: Because of the chip shortage, demand for domestic manufacturing has increased, and India is well positioned to capitalise on this demand by investing in its domestic chip-making capabilities.
Diversifying supply chains: The shortage has highlighted the importance of diversifying supply chains, and India can capitalise on this opportunity by developing relationships with chip manufacturers and suppliers worldwide.
Attracting investment: The EMS and semiconductor industry’s shortage has created a favourable investment climate, and India can attract investment by providing a favourable business environment and a pool of skilled talent.
Creating new technologies: India has a long history of innovation in the electronics and semiconductor industries, and the current supply bottleneck presents a chance for Indian businesses and researchers to create new technologies that can overcome the supply limitations.
Increasing competitiveness: The shortfall has driven up the price of chips and electronics, giving India the chance to do so by cutting production costs through innovation and efficiency improvements.
Utilising these possibilities, many India players will be able to establish itself as a significant player in the global semiconductor market, contributing to the fulfilment of the expanding demand for chips and devices.
